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Coinbase Warns During Times of High Volatility, Access Could Become 'Unavailable' (cityam.com)
An anonymous reader quotes City AM:
A leading bitcoin exchange has warned that customers may be unable to get their money out quickly in the event of a crash in the cryptocurrency's price. Writing in a blog post last week, Coinbase's co-founder and chief executive Brian Armstrong, said despite "sizeable and ongoing" increases in the firm's technical infrastructure and engineering staff, access to Coinbase services could become "degraded or unavailable during times of significant volatility or volume. This could result in the inability to buy or sell for period of time," he said.
Armstrong added that there would be restrictions on how much customers could sell, or sell limits, to "protect client accounts and assets"... Bitcoin's market capitalisation rose above $300 billion for the first time earlier this week when its price rocketed to an all-time high of just over $17,000. Many analysts have warned that bitcoin represents an unsustainable bubble, though no one is quite sure when it will burst.
Armstrong added that there would be restrictions on how much customers could sell, or sell limits, to "protect client accounts and assets"... Bitcoin's market capitalisation rose above $300 billion for the first time earlier this week when its price rocketed to an all-time high of just over $17,000. Many analysts have warned that bitcoin represents an unsustainable bubble, though no one is quite sure when it will burst.
" If the volatility is too high, their margins are not big enough to cover their losses."
Untrue. Market makers list a bid, ask and quantity. Transparent markets have multiple market makers, each listing a bid, ask and quantity.
Coinbase is acting more like listed securities, matching buyers and sellers, making money on the spread. A professional specialist profits immensely from volume (and the spread). Hence the more volatility, the better the profit for a listed market. The real problem is when there's disorder, insufficient resources to handle sell and buy orders, as Coinbase obviously lacks, no one knows the price.
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The problem is that bitcoin blockchain transactions can take from 10 minutes to more than an hour. During a "normal" day, this does not matter so much, because an exchange will have roughly equal numbers of buyers and sellers and can clear transactions internally with just a ledger entry. But on volatile days, the number of buyers and sellers may be skewed, and since the price is fluctuating, the exchange cannot take the risk of internal clearing. So they have to buy or sell bitcoins on the blockchain ... which takes time.
This is not some conspiracy by Coinbase. This is just the way that Bitcoin works.